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Palm oil, the worlds most-consumed cooking oil, must decline about 6 percent in the next few weeks to attract buyers and clear record inventories, according to Dorab Mistry, director at Godrej International Ltd.

Futures on the Malaysia Derivatives Exchange, the global benchmark, need to drop to 2,200 ringgit ($719) a metric ton for the third delivery month, Mistry told a conference in Guangzhou, China today, reiterating a forecast on Oct. 16. Prices last fell below that level in November 2009. Global vegetable oil stockpiles are at a record and reserves of palm and lauric oils will keep expanding until December, he said.

Palm oil, used in everything from biofuels to candy to noodles, has slumped 26 percent this year as an economic slowdown in China and the European Union curbed demand, pushing inventories to an all-time high in Malaysia, the second-largest producer. Futures for January, the third month, fell 2.5 percent to close at 2,336 ringgit in Kuala Lumpur today. The most-active contract fell to a three-year low of 2,230 ringgit on Oct. 3, and has since rallied 5 percent, reducing the appeal of the tropical oil as a biofuel feedstock.

In the last fortnight, palm oil has completely priced itself out of any meaningful energy demand, said Mistry, who in June, correctly forecast a slump. I believe a period of two months of low prices is required to stimulate extra demand and clear away stocks.

Global food use grew by about 3.5 million tons, while consumption for biodiesel shrunk 2 million tons in the year ended Sept. 30 because of double-counting of used oil, waste matters and certain animal oils, said Mistry, whos worked in the industry for 35 years. Supply expanded by 5.9 million tons, leading to a surplus of 4.4 million tons, he said.

Malaysias reserves probably increased to a record of 2.7 million tons in October, from an all-time high of 2.48 million tons in September as a monthly output of 2 million tons exceeded exports, according to a Bloomberg survey. October production may drop to just below 2 million tons and decline further to 1.8 million tons in November, Mistry said. The Malaysian Palm Oil Board will release data on Nov. 12.

Inventories in Malaysia will reach a record 3 million tons on Jan. 1, Mistry said, restating a prediction. It will take a long time to reduce the stockpiles as Malaysia will suspend tax- free exports of crude palm oil from January, he said.

The Malaysian government may have to announce some loopholes and exemptions to its new export tax structure to allow for substantial duty-free shipments to prevent exports from dropping each month, said Mistry.

Malaysia will cut the export duty on crude palm oil, or CPO, and abolish a duty-free shipment quota from 2013, Plantation Industries and Commodities Minister Bernard Dompok said on Oct. 12. The new rates will range from 4.5 percent to 8.5 percent, rising as prices climb from 2,250 ringgit a ton to 3,600 ringgit. The existing levy is 23 percent.

High prices of crude palm oil in Kuala Lumpur will give Indonesian exporters an arbitrage opportunity to ship to Malaysia, turning the nation into a major importer, Mistry said.